It’s like some insurance industry version of “Night of the Living Dead.”

Zombies keep eating rate increases.

In this case, it’s not hordes of zombies that are the menace, but one great big one, American International Group (NYSE: AIG). The crippled insurer, saved from collapse by a huge infusion of taxpayer cash, is hanging onto market share in the businesses that it hasn’t sold off by cutting rates.

That has had the effect of delaying—no one knows for how long—the recovery in premiums predicted by healthy, conservative insurers such as W.R. Berkley (NYSE: WRB).

On October 26, W.R. Berkeley reported third quarter earnings of 67 cents a share, two cents above Wall Street projections. Revenues came in $20 million short of analyst expectations, but still showed a 7.6% increase from the third quarter of 2008.

But here’s the big problem: “At current pricing levels with existing low interest rates, we believe the industry is operating at a net loss on an accident-year basis,” the company said.

That leaves W.R. Berkley with an unpleasant choice: Write business at a loss to keep revenues from falling, putting the company’s future at risk in case of a big payout; or continue its traditional emphasis on writing policies only when the premium makes sense and seeing volumes fall.

I think this situation will eventually resolve itself in favor of W.R. Berkley and other conservative insurers. I was willing to wait for that “eventually” when it looked it would arrive in the first half of 2010.

Now, I can’t predict when “eventually” will come, except that it’s not likely in the first half of 2010. I don’t see a quick solution to the zombie problem—Where is Woody Harrelson when you need him—so I’m going to sell W.R. Berkley out of Jubak’s Picks with this post. I have a 5.2% loss in this position since I added W.R. Berkley to the Jubak’s Picks portfolio on October 7, 2009.

(I know that by selling now, before the December 14 record date, I’ll miss the six cents a share dividend payable on January 5, but the dividend is so small that I don’t think it is a good reason for holding onto the shares for another two weeks. Your opinion may differ. Your call.)

I wouldn’t buy anything with this cash right now. Put it aside for the next dip, drop, or whatever. When that comes, think about following the asset allocation strategy I outlined in this recent post.

Full disclosure: I do not own shares of any stock mentioned in this post.